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Milk Price Rising? Beware of Additional Costs

By P&L Agriconsulting, Oct 15 2017 08:20PM

By Sarah Alderton

Dairy farmers considering pushing for output just because milk price is starting to rise are being warned to beware of the additional costs involved.

According to independent dairy consultant, Phil Clarke of P and L Agriconsulting, the p/litre needed to warrant moving to an all year round housed herd milking three times a day is far higher than most people would expect.

“It was only when a client asked what would the miIk price would have to be for it to be more profitable for him to change his farming system from grazing based to 3x per day housed all year round.

Mr Clarke calculated in a clients herd of 330 cows yielding 8,600litres and with a cost of production of 21.77p/l, he would need to be getting over 35p/litre for his milk in order to exceed total farm profits, compared to his current system on twice a day milking.

At present many farmers are being challenged to change their system and push for additional litres in light of milk price rises, however many will be significantly better off sticking to their simple lower cost system. As you can see in table 1, even by producing an additional 1 million litres off the farm, it would the milk price to be consistently over 36p/l to benefit the change. The question you need to ask yourself is, Do you think 36p/l for your milk is achievable over the next 5-10 years?

X head Production costs

“With three times a day milking his production costs were calculated to increase by 3.6p/l. When accounting for this increase from 21.7p/l to 25.3p/l and taking into account the yields to rising from 8,600l to 11,600 l/cow he would need be getting over 35p/litre to exceed profits from his current twice a day grazing based system,” explains Mr Clarke.

“It’s easy to forget the extra costs associated with that extra milking. Dairy sundries such as chemicals, plant wash, teat dips, liners and parlour repairs will increase by a third.”

Contracting costs would also increase as all forage consumed are commonly fed out as conserved silage, which has a significant cost over grazed grass.

Mr Clarke explains: “On this particular farm the silage production would have to increase from 600t of dry matter to 1,400t dry matter, as they are currently grazed for seven months of the year. This would increase the total forage production cost from £175/cow to £288/cow.

“In addition, all slurry produced would have to be spread rather than only four months worth, therefore tripling this cost,” he says.

Often labour costs are not costed into three times a day milking, says Mr Clarke.

Added labour costs come, not only from the extra milking, but also because an extra milking takes out time in the day when other jobs such as repairs, renewals and crop work would have been done. This could result in farmers having to employ a contractor to do the extra work.

X head Variable costs

In the 330 cow herd Mr Clarke based his figures on, he calculated the variable costs would rise from £1,150 a cow to £1,920 on three times a day milking (see table one).

In addition, total overhead costs after finance would increase from £723 a cow up to £1,015 a cow.

“You need to remember the extra litres don’t come from fresh air, these extra litres require extra feed, both forage and concentrates,” says Mr Clarke.

He also calculated concentrate costs would rise from £445 to £919, this is assuming the feed rate would move from the current level of 0.28kg/l up to 0.36kg/l and the concentrate cost per tonne would increase from £185/t up to £220 / tonne. This is also based on the client moving from an all grass system to a 50/50 maize / grass based system, therefore requiring a higher protein content in the ration.

X head Breaking even

However, if the 330 cow herd doubled to 600 cows the p/l needed to breakeven reduces from 35p/l down to 31p/l, after additional finance costs on the investment in cows and infrastructure.

“There are exceptions where three times a day milking is working well,” says Mr Clarke.

“Certain farms suit this system because of layout etc. However, if you’ve got a simple low cost system it’s better to keep it that way than push for litres.

He adds: “With the long-term predications for milk price at 26.5p/l, (IFCN 10 year forecast) don’t start thinking we are out of the woods just yet. Focus still needs to be on your cost of production rather than the size of your milk cheque.”

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